Economics, as a branch of the more general theory of human action, deals with all human action, i.e., with mans purposive aiming at the attainment of ends chosen, whatever these ends may be.--Ludwig von Mises

Thursday, June 19, 2008

Oil prices sank nearly $5 on Thursday after China said it would raise gas prices by lifting subsidies that have been blamed for driving oil prices higher. The move could curb demand from the country's rapidly growing economy.

Light, sweet crude for July delivery fell $4.75 to settle at $131.93 a barrel on the New York Mercantile Exchange.

China's National Development and Reform Commission said that prices of gasoline, diesel and aviation fuel will increase by 8% beginning Friday.

If you add in the 85.9 billion barrels of oil that lie offshore, as determined by the Interior Department's Minerals Management Service, there are 117 billion barrels of oil on lands owned or managed by the U.S. government. But all expansion of offshore oil recovery is currently off-limits.

Adding in what's available on privately held land, the figure rises to 139 billion barrels of oil, according to the government - more than the known oil reserves of Iran, Iraq, Russia, Nigeria or Venezuela, respectively.

Since we have evidence that consumers respond to higher gas prices by driving less, wouldn't it also be the case that employers of unskilled workers would respond to 12% increases in wages for unskilled workers by hiring fewer unskilled workers?

In nominal dollars, there will be a 41% increase in the minimum wage, from $5.15 per hour in 2007, to $7.25 per hour in 2009. In real, inflation-adjusted dolars, it will be a 25.5% increase, and will be the largest 2-year increase in the real minimum wage in at least 50 years. And this HAS to have an adverse effect on employment of teenage workers.

According to BLS data on unemployment rates by age, it looks like almost all of the .50% increase in May unemployment to 5.5% from 5% in April was due to increases in the jobless rates for young workers in the 16-24 year age group, especially the 16-19 year group.

My Comments: Congress cannot overturn the laws of supply and demand. They cannot wages or prices without the market responding to these external shocks. Sadly, as more and more people become permanently unemployable due to the ever increasing minimum wage, Congress will not recognize the harm it has caused and will call for even more rules, regulations, and laws.

Gas prices have pushed higher above $4 a gallon and risen to a fresh record high, auto group AAA's Web site showed Tuesday.

AAA reported the national average price for a gallon of regular unleaded gasoline rose to $4.043, up 2 cents from the previous day's high of $4.023. This is the fourth consecutive increase and the third straight record for gas prices...

A CNN/Opinion Research poll released Monday showed that 86% of respondents believe gas prices will top $5 a gallon sometime this year.

In the face of soaring gas prices, many Americans say they have changed their driving habits. A full 66% said they are cutting back on the amount of driving they do and 71% indicated that they are considering buying a more fuel-efficient vehicle...

Researchers at Northeastern University described summer 2007 as “the worst in post-World War II history” for teen summer employment, and those same researchers say that 2008 is poised to be “even worse.”

According to their data, only about one-third of Americans 16 to 19 years old will have a job this summer, and vulnerable low-income and minority teens are going to fare even worse.

The percentage of teens classified as “unemployed” — those who are actively seeking a job but can’t get one — is more than three times higher than the national unemployment rate, according to the most recent Department of Labor statistics.

One of the prime reasons for this drastic employment drought is the mandated wage hikes that policymakers have forced down the throats of local businesses. Economic research has shown time and again that increasing the minimum wage destroys jobs for low-skilled workers while doing little to address poverty.

Friday, June 6, 2008

Oil prices shot up nearly $11 a barrel and settled Friday at a record $138.54 on geopolitical jitters, a dollar decline and a forecast that oil would hit $150 by July 4.

Friday's spike in the July contract for light crude on the New York Mercantile Exchange marks the largest singe-day increase in oil prices on record. The contract hit an intraday record of $139.12, breaking the previous trading record of $135.09.

109 room on 235 acresHolyfield appeared on the verge of losing his home, which sits on 235 acres just south of the Fulton County line, after a foreclosure notice appeared in Wednesday's Fayette Daily News. Lien holder Washington Mutual, demanding full repayment of a $10 million loan, had scheduled an auction on July 1.

On Friday, Philip Hasty, an attorney for Shapiro & Swertfeger in Atlanta, the law firm representing Holyfield's lending company, confirmed that the estate is no longer up for auction. Hasty said that the change happened Thursday morning but he declined to comment further.

Holyfield would not elaborate on the foreclosure listing but said "everything is alright with the house now."

Holyfield's former accountant, Sam Gainer, who was fired by the former world champion last fall, said he had advised his client to sell the estate, or at least some of the property.

"To attack that house in any way, or suggest he get rid of it ... that's just not going to fly with him," said Gainer, though Holyfield has not said what his plans are for the property. The manor, completed nine years ago, has an appropriately grand address: Evander Holyfield Highway. It may not have its own area code, but the estate -- worth an estimated $20 million -- does have a bowling alley and movie theater.

"That's his trophy, his symbol of success," Gainer said of the home.

His fight purses since he turned professional in 1984 have totaled roughly $248 million, including $34 million for his 1997 rematch with Mike Tyson. Holyfield was paid $1 million last October to fight Russian Sultan Ibragimov; the former champ lost in the 12th round.

My Comments: How do you earn a quarter of a billion dollars and not manage to pay off you mortgage? Based on earning he should be able to afford an estate worth 2 or 3 times what he has without problems.

As the U.S. Senate debates climate change legislation this week, many have proclaimed the virtue of its “cap and trade” system as a “market solution” to reducing carbon emissions. Nothing could be further from the truth.

Unlike a direct tax, cap and trade is a European-style scheme that masks its negative consequences on the economy behind the rhetorical benefits of new government programs designed to help us. In truth, neither is good for consumers or the economy, but a closer look reveals why so many politicians find comfort in cap and trade.

The economic argument for penalizing carbon emissions is straightforward. If emissions from human activities are contributing to dangerous temperature increases as some scientists claim, then textbook theory says that the government should take steps to increase the private costs to those emitting carbon. Markets are efficient only when firms take all costs of their behavior into account…

Cap and trade is not a market-based solution. It relies on a political scheme to increase costs, and can therefore be justly viewed as a tax, stealthy or otherwise, on energy - the lifeblood of our economy. So here’s the real difference: cap and trade masks the causes of higher consumer prices much better than a straightforward tax. And that is precisely why so many politicians endorse it.

Wednesday, June 4, 2008

Lost in this hubbub, however, is a bigger idea that Mr. McCain and his economic team have put forward: a cut in the corporate tax rate, to 25 percent from 35 percent. It is perhaps the best simple recipe for promoting long-run growth in American living standards.

Cutting corporate taxes is not the kind of idea that normally pops up in presidential campaigns. After all, voters aren’t corporations. Why promise goodies for those who can’t put you in office?

In fact, a corporate rate cut would help a lot of voters, though they might not know it. The most basic lesson about corporate taxes is this: A corporation is not really a taxpayer at all. It is more like a tax collector.

The ultimate payers of the corporate tax are those individuals who have some stake in the company on which the tax is levied. If you own corporate equities, if you work for a corporation or if you buy goods and services from a corporation, you pay part of the corporate income tax. The corporate tax leads to lower returns on capital, lower wages or higher prices — and, most likely, a combination of all three.

A cut in the corporate tax as Mr. McCain proposes would initially give a boost to after-tax profits and stock prices, but the results would not end there. A stronger stock market would lead to more capital investment. More investment would lead to greater productivity. Greater productivity would lead to higher wages for workers and lower prices for customers.

Corporate income is taxed twice--once as corporate income and once as either capital gains or dividend income, which are both counted under personal taxes. Also, economists teach that corporations are often able to pass on much of their tax burden to employees and/or customers. It could even be that relatively high corporate tax rates in the U.S. are incentivizing corporations to find all sorts of sneaky ways to run their profits through lower-tax jurisdictions abroad--that is, we're on the wrong side of the Laffer curve and we could squeeze more tax revenue out of corporations if we lowered the rates. And in the end, corporations are just legal constructs owned and operated by people who, for the most part, pay taxes.

Barack Obama's emergence as the presumptive Democratic nominee on Tuesday sets the stage for a sharp partisan debate over the issue weighing most heavily on voters: the economy.

Over the past several months, as concern grew about the nation's struggling economy, few major differences surfaced between the proposals of Obama and Democratic rival Hillary Clinton.

But that's not the case between Obama and John McCain, the presumptive Republican nominee. The two senators part company on taxes, health care, entitlement benefits and other key economic issues that the next resident of 1600 Pennsylvania Ave. will need to tackle.

At the root of their differences: their views on tax policy and the roles of government and the markets in achieving economic and social goals.

Tuesday, June 3, 2008

A new oil refinery has not been built in the United States since 1976. During that time, our gasoline use has increased over 25 percent. The nation's 149 existing refineries have been running at maximum capacity trying to meet record demand and, as a result, not only do we import oil, we actually have to import 10 percent of our daily gasoline from refineries overseas.

So when Hurricane Katrina or a refinery fire or anything else causes even just a few refineries to shut down for awhile, there is absolutely no excess capacity nationwide to make up the difference, and prices at the pump skyrocket.

For the wealthiest, most powerful nation in the world this is a ridiculous situation that will only get worse as our insatiable demand for gasoline keeps growing and refinery capacity falls further behind in the coming years.

Just a few new refineries would alleviate the problem and help keep our gas prices lower and steadier.

In a sign of how difficult it is to sell new homes in Southern California right now, a San Diego developer is offering a "buy one, get one free" deal, pairing million-dollar homes with less expensive homes...

"Michael Crews Development is offering new, 2000-square foot cityscape row-home worth $400,000 in Escondido for free -- if you buy one Royal View Estate home in San Pasqual Valley starting at $1.6 million. 'You know it's a straight-up legit deal; no prices have been increased, there are no hidden costs. Michael is just giving away a free home for people that buy at Royal View,' said Berry."

"Adam Rossman of Michael Crews Development added, 'People have been coming in saying, 'How can you do this?' Well, it's our way of dealing with current market conditions to move some inventory.' "

General Motors announced plans Tuesday to shut four pickup and SUV plants, saying high fuel prices have produced a rapid and permanent change in consumer preferences away from the truck models on which it has depended.

At a news conference in Wilmington, Del., GM Chairman and CEO Rick Wagoner also unveiled plans to produce more fuel efficient vehicles

Wagoner also said GM is looking at possibly selling its Hummer brand, the large SUV based on military vehicles.

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The Philosophy of Liberty

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The body of economic knowledge is an essential element in the structure of human civilization; it is the foundation upon which modern industrialism and all the moral, intellectual, technological, and therapeutical achievements of the last centuries have been built. It rests with men whether they will make the proper use of the rich treasure with which this knowledge provides them or whether they will leave it unused. But if they fail to take the best advantage of it and disregard its teachings and warnings, they will not annul economics; they will stamp out society and the human race.

Ludwig von Mises

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings. To stress this point is the task of economics.

Ludwig von Mises

Quotes

Underlying most arguments against the free market is a lack of belief in freedom itself.

Milton Friedman

Economic history is a long record of government policies that failed because they were designed with a bold disregard for the laws of economics.

Ludwig von Mises

The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else.

Frederic Bastiat

Modern civilization is a product of the philosophy of laissez faire. It cannot be preserved under the ideology of government omnipotence.

Ludwig von Mises

No one can find a safe way out for himself if society is sweeping towards destruction. Therefore everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interests of everyone hang on the result.

Ludwig von Mises

Freeing the economy is the only path to sustainable prosperity.

Sheldon Richman

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

FA Hayek

Tyranny is the political corollary of socialism, as representative government is the political corollary of the market economy.

If we can’t trust people with freedom, how can we trust them with power?

Sheldon Richman

As soon as we surrender the principle that the state should not interfere in any questions touching on the individuals mode of life, we end by regulating and restricting the latter down to the smallest details.

Ludwig von Mises

A claim for equality of material position can be met only by a government with totalitarian powers.

F. A. Hayek

We must fight all that we dislike in public life. We must substitute better ideas for wrong ideas.

Ludwig von Mises

If you think we are free today, you know nothing about tyranny and even less about freedom.

Tom Braun

The market economy is the social system of the division of labor under private ownership of the means of production. Everybody acts on his own behalf; but everybody's actions aim at the satisfaction of other peoples needs as well as at the satisfaction of his own. Everybody in acting serves his fellow citizens.

Ludwig von Mises

Anyone who wants to vote probably shouldn’t be allowed to vote. Voting is the first step towards zombification – trying to get something without actually working for it.

Bill Bonner

A market-based economy is extraordinarily resilient, but cannot forever bear anti-business rhetoric and overweening governmental intrusion into affairs best left to the private sector.

William Shughart

Government is not created to produce public goods, to control externalities, or to enforce social cooperation for the good of all. It is created by force for the benefit of its creators.

Randall Holcombe

Economics is not about goods and services; it is about human choice and action.

Ludwig von Mises

...neither do I subscribe to the idiotic neo-Keynesian econometric crapola that fascinates the Federal Reserve and mainstream academia, a theoretical monstrosity which has resulted in the horrific economic mess we are in, and from which there is, alas, no escape.

Richard Daughty

Economics deals with society's fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen.

Ludwig von Mises

Keynesianism is not a theory of economics. It is a confidence game, and the question is not whether they can correctly predict the future. The question is, can they gain your confidence and get you to act in such a manner that they can steal your wealth?

Howard S. Katz

Government means always coercion and compulsion and is by necessity the opposite of liberty.

Ludwig von Mises

True, governments can reduce the rate of interest in the short run. They can issue additional paper money. They can open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression.

Ludwig von Mises

Mr. Benanke has never been right about anything.

Jim Rogers

The essence of Keynesianism is its complete failure to conceive the role that saving and capital accumulation play in the improvement of economic conditions.

Ludwig von Mises

A man who chooses between drinking a glass of milk and a glass of a solution of potassium cyanide does not choose between two beverages; he chooses between life and death. A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings.

Ludwig von Mises

Economists are often asked to predict what the economy is going to do. But economic predictions require predicting what politicians are going to do-- and nothing is more unpredictable.
Thomas Sowell

The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.

Thomas Sowell

Quotes Two

But, unless you are willing to surrender your children and your country to galloping inflation, war and slavery, then this cause demands your support. For if human liberty is to survive in America, we must win the battle to restore honest money.

Howard Buffett

With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people.

Friedrich A. Hayek

Bernanke is a complete fool, trapped in academic wonderland, completely oblivious as to how the real world works. To top it off, Bernanke has the gall to knowingly lie about the real world effects of his blatant stupidity.

Mish Shedlock

Gold as money prevents inflationary policies and corruption. Gold is a precondition for a free society. It is the most liquid product, the best store of value, the best insurance and nobody else's liability.

Ferdinand Lips

In economic terms, a zombie is a parasite. He contributes less to the economy than he takes from it. He lives at the expense of others.

Bill Bonner

As soon as the economic freedom which the market economy grants to its members is removed, all political liberties and bills of rights become humbug.